Khalid al-Falih, Saudi Arabia’s Energy Minister, said today that OPEC will respond to the oil market’s needs. He, however, said that he believes there is no shortage currently referencing data from the US that shows inventories building. Falih was speaking in Jeddah ahead of a ministerial panel gathering scheduled for May 19, 2019.
Russia and Saudi Arabia will attend the summit. The minister said that OPEC will not discuss on output until late June in another scheduled meeting. OPEC, Russia, and several other non-OPEC producers agreed to cut output by 1.2 million barrels per day (bpd) starting January 1 for six months. The deal came about to prevent inventories from building up, in turn, weakening prices.
Falih believes that OPEC will be flexible in doing the right thing for the global economy. OPEC is guided by two major principles: First, they strive to keep the market balanced at optimal levels. Secondly, they act responsively to the market needs to strike the perfect balance at any given time.
OPEC’s agreed production cut is 800,000bpd. However, the actual reduction is considerably larger as a result of losses in Venezuela and Iran. Both countries are under US sanctions. Thus, they are exempt from the OPEC-led deal of voluntary reductions. Although President Trump called on OPEC to lower oil prices, Riyadh, the group’s de facto leader, is reluctant. They are not yet ready to boost supply quickly and risk a price crash.
The ministerial panel meeting, dubbed the JMMC, comes in the wake of a tight market. Iran’s oil exports will plunge further in May while the Venezuelan shipment could plummet much more in the weeks ahead. All these occurrences point towards the US sanctions on both countries.
Flows along the Druzhba pipeline were stopped after oil contamination was discovered in April. The pipeline is a major conduit for Russian crude to flow into Germany and Eastern Europe. That suspension left many refiners searching for supplies elsewhere.
The US crude inventories surged to their highest since September 2017. Gasoline stockpiles reduced more than forecast as the Energy Information Administration (EIA) announced on Wednesday. According to Reuters, an OPEC and non-OPEC technical committee discovered that crude producers’ compliance with the supply-reduction deal of six months reached 168% in April.
The committee that did that research, known as the JTC, met to discuss the oil markets ahead of Sunday’s JMMC summit in Riyadh.